The coming disorder – world is entering a new economic era

There's a fundamental, underlying reason the stock-market's had its worst ever start to the year and it's exactly the same reason that world growth has gone exactly nowhere since 2008.

Australian Prime Minister Malcolm Turnbull, right, is welcomed by his Japanese counterpart Shinzo Abe before their meeting in Tokyo in December 2015.

Photo: AP

Think about it. Seven years of hard graft to go exactly nowhere. The depth of loss is phenomenal. But what's far more significant is that nobody has any idea of how to escape this morass. Sure, politicians and economists are peddling their lines and pretending they (now) know exactly what the problem is and how we can get out of the mess. The reality is, however, that they still can't isolate exactly what's causing the crisis – let alone how to get out of it.

Take Japan. Prime Minister Shinzo Abe has been desperately attempting to re-ignite that country's economy since 2012, when growth was stuck at 1.8 per cent. Nothing's worked. The projection for 2015 suggests that all his stoking the economy was pointless, because growth has collapsed back to 0.3 per cent. Even that figure's way better than last year. Then, the economy went backwards (by 0.1 per cent).

It's easy for us to pontificate about why other countries are in difficulty. That's because we can stand back and see the real, underlying issues that those engulfed in the crisis can't. In Japan, for example, demographic, financial and cultural issues need to be addressed. The government's made a couple of lacklustre attempts to deal with these fundamental problems, but it's always returned to the easy option: pretending that the growth model still works and that everything's OK. The critical factor is, though, that no matter how much money the government throws at infrastructure funding; no matter how much central banks slash interest rates; and no matter what the politicians say as they attempt to stoke the fires of world economic growth, their efforts will prove futile. That's because their model is broken. The world's entering a new era.

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The vital thing to grasp is that we are at the critical intersection of a number of massive, critical, and seemingly divergent trends. The shifts are simple. You've already experienced them and that's why the words and narratives coming from economists and politicians no longer reflect your reality. You know this at an instinctive level, nevertheless we've all got to work within the system and so we do. Nobody's paid to question its fundamentals. So begin by dismissing everything you're been told about the way the world works and turn it inside out.

Start with the most basic understanding of all, the relationship between growth and power. Until recently there was an inexorable rule that greater size brought greater prosperity. The relationship was direct and the bigger the market the better. Sure there'd be unemployment, but as the base grew more people would be required to build buildings, drive trucks, and push paper from one desk to another. That's not the case today. Better, cheaper computers are increasingly replacing workers and machines do things that people can't. New communications links mean geography is no longer a barrier. Chennai is no longer simply taking jobs from help desks; cheap overseas labour is doing the intellectual work and machines are replacing skilled workers. Aussies will still be needed to make coffee and clean houses, but that's about it.

This means our basic economic model is broken. That's why we've had the "jobless recovery". Growth will never be restarted. Any politician promising it will be is lying.

Look back to the first intimidations of the financial crisis. Kevin Rudd told us we could spend our way out of the problem. Unfortunately the changes transforming our economy are bigger than any cash splash. That's why solutions are proving out of reach, not just of Australia's politicians, but the rest of the world's leaders as well. The elites at Davos are doing well out of these changes. That's why they're embracing the "transformation" as "exciting". And it is, until you lose your job, house, and future. The issue is that what's good for the few isn't good for the many.

Consider the Euro. A bizarre idea that was never intended to work for ordinary people, but "oh so efficient". Back then the story was that adopting the Euro would usher in a new age of wealth and prosperity for all. Is it really a surprise to discover that a Cypriot farmer can't compete with a German factory-worker?

Consider low inflation. This is supposedly the key to ever-lasting prosperity and yet the door it's unlocked is to a future of stasis and rigidity. Are we really shocked that an economic system designed to reduce growth is intrinsically incompatible with expansion?

Consider inequality. The prospect of huge wealth was meant to encourage workers to try a bit harder. The problem is that unless the pie continues expanding this means someone else is just grabbing your share. And how about the claim reduced trade barriers mean more wealth for all? Well, no, actually. There are, as always, winners and losers. And finally, what about the environment? It is changing. Dramatically. More air-conditioners and heaters aren't going to solve this problem. Extremes are the new norm. The past decade has seen the world's hottest year, month and day as well as the lowest ever recorded temperature in the continental US. Growing the economy won't solve the real problems besetting our future.

How we meet these challenges will determine not just how we survive into the future, but the far more basic question of if we're going to survive at all. This is a fundamental crisis. The old answers won't suffice. Until the economists and politicians actually manage to grasp the new reality, they'll continue serving up the old answers that have failed us so badly. We urgently need a broader view. That's why voters leapt at the idea of Malcolm Turnbull as Prime Minister, in the hope that he may have some new ideas. We need someone to challenge the status quo.